A common question with foreign investors is how the purchase process works in the Czech Republic, as well as the time-frame in which things will be accomplished.

This will be presented on the basis of our standard procedure at Czech Point 101, which has been successful for many years now.

First, a property is identified and the price is negotiated until there's agreement between the buyer and seller. Sound like an easy process? In Western countries it definitely is, and it can be here, but often this is not the case.

Now what?

At this point, there will be great pressure to sign a reservation contract and pay a deposit.

"We have another buyer who is willing to pay full-price tomorrow" or, "We have a great deal of interest in this property so we will only hold overnight while you make your decision," are both common statements you might hear from the real estate agent.

Believe me, unless you are the first person to see the property, or it has just been put on the market, you have time to think. The agent would sell the property immediately if there was a serious buyer.

A note of caution: never, ever sign a reservation contract with a real estate agent before getting it checked by an independent attorney. Of course, and especially, if it is only provided in Czech. The agreements a real estate company will offer are most often one-sided and set up for the buyer to lose their damage deposit. We have heard of cases where the seller withdrew from the purchase, acknowledged this in writing, and the agent still refused to return the deposit.

Usually, work can begin immediately on the pre-purchase contracts -- with a mortgage; or the purchase contract -- in the case of a cash purchase. This will usually satisfy the real estate agent/owner and prevent them from offering it to other buyers; however, this is not always a sure thing.

Often, the seller will put forward a pre-purchase agreement that takes about two weeks to negotiate. This is the bulk of the negotiating and legal work since the pre-purchase normally contains the complete text of the purchase agreement.

At this point a date is set to sign the pre-purchase/purchase contracts. Allow a week and a half to find a suitable time for both the buyer and seller.

From this moment, the two paths divide, depending on whether the purchase is with cash or with a mortgage.

Purchase Contract (Cash Purchase)

Upon signing the purchase agreements, the purchase price is deposited -- this is the recommended route -- to an escrow or third-party account. Normally the escrow agreement allows 15 days, from the time it is signed, for the amount to be transferred to the notary account. If it is ready, and just needs to be wired, it normally takes three to five days.

During this period, the signed purchase contracts are held by the escrow agent, whether a notary office or an attorney. When the purchase amount arrives in the account, the purchase contracts are released to the Land Registry for registration.

Pre-Purchase Contract (Mortgage Purchase)

Upon signing the pre-purchase agreement, typically an amount of the purchase price is deposited to the escrow account. This is often the amount that the buyer is using from their own cash. In the case of 100-percent financing, this does not have to be the case.

Now the mortgage application process begins in earnest. The collection of required documents, and bank approval is roughly a six-week process. It can be more or less depending on the complexity and the bank.

Once the mortgage has been approved, there is usually a "drawdown" in which a deposit from the mortgage amount is paid to the escrow account, prior to the purchase agreement being signed. Allow some time to arrange a suitable date for signing the purchase agreements between the buyer and seller.

Common Conclusion

Once the documents are submitted to the Land Registry, it is just a matter of time before the change is registered and you, as the buyer, become the owner.

As of this writing, the process has speeded up considerably and Prague Land Registry changes are being registered in two to three months; and in Brno, from two to four weeks. This is a great improvement.

During this time period of registration, it can be possible to agree on the turnover of the property, but often this is in exchange for some of the purchase amount being released from the escrow account.

Breakdown of Property Purchase Timeline (Cash Purchase)

Description

Average Lengthof Time (days)

Negotiation of Purchase

14

Finding Mutually Agreeable Signing Date

10

Transfer of Purchase Amount to the Escrow Account

10

Registration of New Ownership in Land Registry - Prague

Registration of New Ownership in Land Registry - Brno

60 to 90

14 to 30

Handover of Property

20

Total - Prague

Total - Brno

114 to 144(4 to 5 months)

68 to 84(2 to 3 months)

Breakdown of Property Purchase Timeline (Mortgage Purchase)

Description

Average Lengthof Time (days)

Negotiation of Pre-Purchase Contract

14

Finding Mutually Agreeable Signing Date for Pre-Purchase Contract

10

Securing Mortgage with Bank

42

Drawdown and Transfer of Purchase Amount to the Escrow Account

10

Finding Mutually Agreeable Signing Date for Purchase Contract

10

Registration of New Ownership in Land Registry - Prague

Registration of New Ownership in Land Registry - Brno

60 to 90

14 to 30

Handover of Property

20

Total - Prague

Total - Brno

166 to 196(5.5 to 6.5 months)

120 to 136(4 to 5 months)

This can be a time-consuming process and may come as a surprise to buyers who are expecting a quick purchase and turnover of the property. One thing to realize when it comes to Czech business -- things do not move quickly! Be patient, have realistic expectations and your goals will be realized.

This article first appeared in the March/April 2007 Czech Point 101 Newsletter.